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J. C. Penney Company, Inc. Message Board

  • kellyf646 Oct 30, 2013 4:42 PM Flag

    Marc Lasry Long JC Penney ( Carl Icahn's protege) long JCP

    Wednesday, October 30, 2013

    Marc Lasry Long JC Penney Debt: Invest For Kids Chicago Presentation
    Next up in our notes from Invest For Kids Chicago 2013 is Marc Lasry of Avenue Capital. He pitched J.C. Penney (JCP) as a long at the event.

    Marc Lasry's Presentation at Invest For Kids Chicago 2013

    • Reason all the risk in the system is that LIBOR is that 25 bps
    • Supposed to generate a 40x RFR for get 10% per annum. But isn’t there risk there?
    • Why is that risk?

    • Idea #1 is J.C. Penney Debt
    o Why JC Penney? Convince to go and shop
    o Everyone believes JCP will file for bankruptcy
    o Bonds mispriced based on that assumption
    o JCP operates in 49 states (no Hawaii)
    o Slowing retail environment and they get rid of old CEO and bring in Ron Johnson
    o Ron Johnson took a bunch of risk
    o Coupons and promotions here historical
    o Prior to new strategy $17 billion in sales $1.4 billion of EBITDA yet goes to -$500 million of EBITDA
    o Able to raise $2.2 billion of new debt to get to $3 billion of debt and $2.5 billion on unsecured – but that have $2 billion of cash
    o Interest payments are $250 million so hard to file of bankruptcy
    o JCP survives unless the value differential
    o Make ~25% return per year for 2 years in debt so you are making 80x RFR due to the believe that JCP will file bankruptcy
    o Same stores sales are flat to up
    o So you are creating the company
    o Majority is telling you “you are wrong”
    o “Nobody likes noise and don’t want to deal with it and that creates opportunity”

    While Lasry's talking about debt, numerous other prominent hedge funds have been in and out of JCP equity and you can scroll through that link to follow the saga.

    7:17 pm
    Oct 29, 2013 HEDGE FUNDS
    Marc Lasry: Go Long J.C. Penney Bonds

    Maybe the most contrarian idea from a hedge-fund conference in Chicago Tuesday came last: Go long on J.C. PenneyJCP +2.98% bonds.

    Marc Lasry, of Avenue Capital Group, made the investment call for the Invest for Kids conference, saying the bonds of the struggling and beaten-down retailer are worth their face value, not the 65 cents they trade near now. The call amounts to a bet that J.C. Penney, which started burning cash as sales slumped during a turbulent year, will survive.

    “I think it’s a bit misunderstood, but everybody thinks it’s going to file,” Mr. Lasry said. “It’s kind of hard for this company to end up in bankruptcy when it has $2 billion in cash.”

    Mr. Lasry said interest payments total only about $500 million over the coming years and that J.C. Penney should start making money again next year, making it unlikely to run into as much trouble as the bears think.

    J.C. Penney has been locked in a downward spiral since activist investor Bill Ackman stormed the board and helped change management. In came Apple Inc.AAPL +1.59%’s Ron Johnson, who attempted a dramatic turnaround, but wound up seeing sales plunge.

    “He was able to do this in one year,” Mr. Lasry said sarcastically. “It takes people lifetimes to do this.”

    At one point, retelling the story of the troubles to the audience, he added: “I wish I was making this up, I’m not.”

    Several long names have headed into J.C. Penney since Mr. Ackman resigned and the stock plunged. The company also brought back former CEO Mike Ullman and has seen results improve in recent quarters.

    “It looks like everything is stabilizing,” Mr. Lasry said.

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